Bollinger Bands

intermediate7 min read

Bands that breathe with volatility — how to read squeezes and expansions.

Bollinger Bands wrap a moving average (usually the 20-period) in two bands set a couple of standard deviations above and below it. Because standard deviation is a measure of volatility, the bands literally breathe — widening when price gets volatile and contracting when it calms.

The bands turn the clustering of volatility into a visual you can trade. When the bands pinch tight (a “squeeze”), volatility has dropped to an extreme low — and because volatility mean-reverts, that unusual calm tends to be the coiled spring before a big move. When the bands balloon wide, volatility is spiking, often near a climax that will eventually settle. You’re watching the market inhale (squeeze) and exhale (expansion) — and the squeeze is the part traders prize, because quiet rarely lasts.

The squeeze — bands narrow to an unusually tight range; low volatility that often precedes a strong breakout (direction unknown until it fires).
The expansion — bands widen sharply as a big move unfolds; volatility is high and may be peaking.
Touching a band — price tagging the upper/lower band shows it’s stretched relative to recent volatility, NOT an automatic reversal signal (same trap as overbought/oversold).

Common mistakeSelling every time price “touches the upper band” and buying every touch of the lower. In a strong trend, price can ride a band for a long stretch. A band touch means “stretched,” not “reverse” — exactly the overbought-trap lesson in a new costume.

ExampleA stock’s Bollinger Bands contract to their tightest in months as it goes quiet — a classic squeeze. Days later it breaks out forcefully and the bands explode wider. The squeeze warned that the calm was unsustainable; the expansion confirmed the move had arrived.

Key takeawayBollinger Bands are a moving average wrapped in volatility-based bands that widen and narrow. A squeeze (tight bands) signals unusually low volatility that often precedes a breakout; an expansion signals a big move underway. A band touch means “stretched,” not “reverse.”

FAQs

Does a squeeze tell me which way price will break?

No — a squeeze signals that a big move is *likely coming*, not its direction. You wait for the actual breakout (ideally with volume) to reveal the way. Pairing Bollinger squeezes with another tool, like Keltner Channels or trend context, helps confirm the break.